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Consumer Tech Startups In Dhaka Remain Limited In Scale, Mostly Serve Urban Upper Middle Class

A significant percentage of Dhaka’s consumer tech startups are basically urban services. Many of these services, at their current form, have no or limited market outside major urban hubs such as Dhaka, Chittagong, and Sylhet and probably Cox’s Bazar. 

More importantly, many of these services don’t cater to all the urban population. They serve only a small percentage of the urban population, mostly upper-middle-class group. 

If this trend continues and startups don’t change themselves at the value proposition level, a large number of these consumer tech startups would find them in rough places and would struggle to generate numbers that could attract serious venture capital investment.

Generally speaking, you can divide the majority of successful consumer tech companies applying two simple strategies when it comes to scale. 

First, you start with serving a high-end market, which is large enough, build strong brand loyalty and find ways to earn more from that same market as you go along. 

Second, you start with serving a large market following the axiom “to build a billion-dollar company you need to serve a billion people”. Your path to a large market might be different. You might start with a small segment. But you offer a value proposition that resonates with a large market than your existing one. 

If you look at major consumer tech success stories starting from Apple, Google, Xiaomi, Whatsapp, and Bangladeshi companies such as bKash, Grameenphone, or Symphony, all these companies followed either one of these models.  

Unfortunately, this is not the case with a majority of consumer tech startups in Dhaka today. 

A large number of tech companies today in Dhaka are built primarily for a certain segment of the urban population. As a result, if you look at the numbers most consumer tech startups generate, they don’t look like consumer tech startups at all. And it seriously affects their business. 

There are five fallacies at work here. One, at the value proposition level where many companies taut convenience as the key value proposition. Second, apparent disregard for finding sustainable price competitiveness outside of discounts or promotional offers. Third, a majority of the startups show unrealistic optimism when it comes to figuring out the addressable market size. Fourth, contextualizing services that worked or yet to be proven in other markets such as India and the US disregarding the fundamental nature of the Bangladesh market. Fifth, conflating software business with businesses in verticals where tech is only one piece of a lot of other things and thus underestimating the cost of building a business in those verticals.  

Dhaka lacks a proper funding ecosystem for startups. The local VC ecosystem is yet to mature. The interest that many international investors have been showing in the Bangladesh market is yet to materialize. Lack of funding remains a key concern of many entrepreneurs. 

At the same time, the complaint that there are not enough fundable startups in the market is also there. 

Many consumer tech startups lack numbers and scale required for attracting serious venture capital money. One of the reasons being, the existing market for these services is not large enough. The value proposition does not fit with the inherent nature of the market. And consumers don’t find the current price point reasonable to use the service regularly. 

Bangladesh as a market is distinct from any other markets including India. That’s the inherent nature of any market. There are macro similarities but at the micro-level, there are nuances that don’t meet the eyes but make all the difference. 

Take one example, most of the consumer tech companies that are valued at a billion dollar or more in India are seldom limited to Delhi or similar big Indian cities. They are all over India from tier 1 to tier 2 and 3 cities. 

In Dhaka, that is rarely the case. Most consumer tech startups don't even cover entire Dhaka. 

Consumer tech startups in Dhaka should start seriously think about these challenges and find ways to shape their value proposition that is relevant to a larger segment of the urban population and beyond. 

Bangladesh has a growing urban population. Several predictions says that 110 million in Bangladesh will live in urban areas by 2035, mostly driven by climate change and other not so good reasons. 

Currently, Bangladesh’s urban population is concentrated mainly in four metropolitan cities - Dhaka, Chittagong, Khulna, and Rajshahi - 60% of the urban population lives in these four cities. 

While the population of major urban destinations has been on the rise, these cities are diverse in the nature of its inhabitants. 

Take, for example, Dhaka has over 20 million people. But the income disparity between upper-class people who live in Dhaka and the middle and lower-middle class is staggering. Only a tiny percentage Dhakaites own car. The percentage that owns an apartment is even slimmer. 

The point being affordability of urban population in Bangladesh varies. A tiny percentage of Dhakaites can afford to visit expensive restaurants in Gulshan, and attend many urban facilities and services that are made keeping a certain upper-class group in mind. 

This reality is likely to affect every consumer business. Unfortunately, this reality of the market is easy to overlook. It is more difficult when you contextualize an idea which originated in some other market to solve market-specific needs. 

To me, it seems that a large number of Dhaka’s consumer tech startups are suffering from a lack of touch with reality. 

Most of the consumer tech services in Dhaka such as ride-hailing, food delivery, on-demand services, and so on are contextualized services of what worked in other markets. Many founders saw that one particular idea is working in some markets such as India or the US and they brought the idea here and contextualized it. 

The problem is that many of these ideas are not congruent with the dynamics of the Bangladesh market. 

In order to make them work and scale, these services have to change fundamentally, at the value proposition level. This has not happened yet. As a result, most companies are struggling to deliver numbers that are necessary for a consumer tech startup. 

For example, food delivery companies often taut convenience as a value proposition. While convenience as a value proposition for a food delivery service works well in a western market where you would need to drive miles if you want to go to a restaurant, it is seldom a reality in Dhaka where there are shops near every apartment building. 

Convenience does matter for a lot of people in Bangladesh but the number falls short to build a large enough VC scale consumer tech business. 

This, however, does not mean that there is no market for food delivery service in Dhaka. There is but the value proposition has to match what the market demands. 

The challenges consumer tech companies in Dhaka have been going through over the past years such as funding and a lack of fast-enough growth are the result of their concentration in Dhaka and their inability to offer a value proposition that is more urgent than convenience. 

In order to overcome these challenges, these companies should, first, build a value proposition that works for a large enough number of the urban populations such as better prices and/or a large collection. 

Second, these companies should find viable ways to go beyond major urban cities and expand across the country. Dhaka as a main market and convenience as the only value proposition are unlikely to work for building scale. 

Lessons from bKash, Grameenphone, and Symphony 

bKash, Symphony, and Grameenphone are some of the most successful consumer tech companies in Bangladesh. 

There are a ton of lessons to be learned from these companies regarding how they have come where they are and how they have grown to become dominant players in their verticals (except Symphony, which has been going through challenges). 

Here are two lessons that I think are relevant to today’s consumer tech startups. 

First, a strong value proposition that resonates with a core group of people and then expanding it without diluting the value the product delivers. bKash does not offer mere convenience, it addresses a necessity.  

Second, outside Dhaka. All three companies have built successful operations outside Dhaka from the early days. Grameenphone became Grameenphone through its village phone lady program. We all know bKash story. And Symphony is the first mobile handset company to make mobile affordable to common people who could not afford a phone before. 

This is something that many consumer tech startups today in Dhaka fail to grasp but they desperately need to try. 

It is understandable that today’s consumer tech startups are materially different from bKash or Symphony. You can’t put an analogy between a mobile financial service and an online food delivery service marketplace. The operating multiples are different. The underlying dynamics are different. The markets are different. Consumer expectations are different. 

That being said, these differences don’t change the necessity of building a scalable business. 

And scale demands these companies grow up and become more than what they are now. 

Mohammad Ruhul Kader is a Dhaka-based entrepreneur and writer. He founded Future Startup, a digital publication covering the startup and technology scene in Dhaka with an ambition to transform Bangladesh through entrepreneurship and innovation. He writes about internet business, strategy, technology, and society. He is the author of Rethinking Failure. His writings have been published in almost all major national dailies in Bangladesh including DT, FE, etc. Prior to FS, he worked for a local conglomerate where he helped start a social enterprise. Ruhul is a 2022 winner of Emergent Ventures, a fellowship and grant program from the Mercatus Center at George Mason University. He can be reached at ruhul@futurestartup.com

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